Ch47 Effectiveness of Macro Policies

Front

What does a Laffer curve show?

Back

A Laffer curve shows the relationship between a tax rate and the revenue that it generates. As the tax rate increases, the revenue peaks. Any further increase in the tax rate reduces tax revenue.

Front

What is the effect of expansionary monetary policy?

Back

An expansionary monetary policy can reduce unemployment and promote economic growth, but it may increase demand-pull inflation and a deficit on the current account of the balance of payments.

Front

What are the effects of cuts in income tax and unemployment benefits?

Back

Cuts in income tax and unemployment benefits are supply-side policies that are unlikely to improve income distribution as the unemployed may not find employment.

Front

What macroeconomic objectives can be achieved by supply-side policy?

Back

Spending on education, training, and infrastructure can increase economic growth, reduce inflation and unemployment, improve the current account, and reduce income inequality.

Front

What is the impact of currency depreciation or devaluation?

Back

A depreciation or devaluation of a currency's exchange rate should improve the current account balance, increase economic growth, and reduce unemployment. However, it may cause demand-pull and cost-push inflation.

Front

Why free trade?

Back

Promoting free trade is consistent with the principle of comparative advantage. It should increase economic growth.

Front

Why trade protectionism?

Back

Protection is used to protect employment, sunrise and sunset industries, and counteract dumping of low-cost imports.